Dollar can help global share bulls

AUSTRALIA'S soaring dollar has made it more attractive to invest in overseas shares, as long as you can stomach the volatility of financial markets.

The rise of the Aussie dollar in recent years has weakened returns from overseas shares for local investors. But the flipside is that when our dollar heads back to its long-term average, those who buy now will get a handy bonus return.

Prescott Securities financial adviser Alex Butler says Australian listed companies make up only 2 per cent of world share markets.

"Investing in international companies to diversify a portfolio can be appealing," said Butler. "The coming float of Facebook - and the stellar rise of Apple shares in the past decade - has put the sector in the spotlight for investors."

"With online trading sites providing at-home access to international markets, it has never appeared easier for small investors to buy shares in top 10 companies such as Apple, Royal Dutch Shell or Microsoft," Butler said.

However, it can be costly and dangerous for those who don't have the right knowledge or research behind them.

What are they?

A key rule of investing is to put your money in something you understand, and many of the world's largest companies are already household names here.

These include Exxon Mobile Shell, Wal-Mart and IBM.

Just outside the top 10 are Nestle, Google, Coca-Cola and Australia's BHP Billiton, which was ranked sixth a year ago.

"The great problem with the Australian share market is that it's all banks and miners," said Steven Dooley, head of research at foreign exchange and CFD trading firm ForexCT.

Technology stocks are an example. "Here's the most important sector in the world over the past 20 years and we just don't have access to it (on the ASX)," Dooley said.

How to do it

There are several ways to invest in the global giants. The most common is through managed funds, where your money is pooled with other investors and used to buy a range of shares in a country or sector.

Macquarie Equities private client adviser Marcus Campbell says they can provide access to sectors and stocks not normally available in Australia.

"International managed funds, while tending to attract higher management fees, have the benefit of providing access to some of the world's best investment fund managers," he said.

Campbell says exchange-traded funds, or ETFs, are available through both financial advisers and online share trading platforms.

These funds often mirror a specific index, such as the top 500 US stocks or the 50 biggest global shares. "ETFs are also traded like company shares, which enables more flexibility than a comparable managed fund," Campbell said.

He says investors can also buy overseas shares directly through some stockbrokers, but there may be extra costs such as annual account fees or higher brokerage rates.

Some online stockbrokers also allow overseas share buying, and Dooley says CommSec and Etrade own this space.

"Buying overseas companies is a lot more expensive (two to three times) than Australian ones," Dooley says.

"Investing in international shares certainly exposes investors to currency risk on top of the everyday share price risk," he said.

Investors worried about the fluctuations can seek hedging, whereby you pay extra to mitigate movements in currencies. "Hedging is not an activity best left to a novice investor," he said.

"Professional financial advice is a must."

Many experts say now's not the time to hedge as our dollar is so strong.

Campbell says Macquarie's view is that investors keep a largely unhedged exposure to overseas shares until the dollar is much lower.

Dooley has a similar view. "As with buying online from Amazon, now's the best time to buy overseas shares with the Australian dollar so strong," he said.

"When the Australian dollar falls, it's at times when the global economy is doing really badly. So you get yourself a natural hedge when our dollar falls - that dampens the share prices overseas falling.

"Try and have some overseas share exposure but make sure it's unhedged, so it works as a natural hedge. It produces less volatility in your overall portfolio," he said.